Here is my NYT column on globalization, excerpt:
Despite all these gains, the prevailing intellectual tendency these
days is to apologize for free trade. A common claim is that trade
liberalization should proceed only if it is accompanied by new policies
to retrain displaced workers or otherwise ameliorate the consequences
of economic volatility.Yes, the benefits of a good safety net
are well established, but globalization is not the primary source of
trouble for most American workers. Health care problems, bad schools
for our children or, in recent times, bad banking practices have all
produced greater disruptions – and these have been fundamentally
domestic failings.What’s really happening is that many people,
whether in the United States or abroad, are unduly suspicious about
economic relations with foreigners. These complaints stem from basic
human nature – namely, our tendency to divide people into “in groups”
and “out groups” and to elevate one and to demonize the other.
Americans fear that foreigners will rise at their expense or “control”
some aspects of the economy.One approach is to appease these
sentiments by backing away from trade just a bit, or by managing it, so
as to limit the backlash. Giving up momentum, however, isn’t
necessarily the right way forward. If we are too apologetic about
globalization, we can feed core irrationalities, instead of taming
them. The risk is that we will frame trade as a fundamental source of
suffering and losses, which would make voters more nervous, not less.
Do read the whole thing. A few further points of note:
1. Virtually all of the "second best worrying" about trade could be applied also — in fact more so — to technical progress. Or to trade across the fifty states. Yet when it comes to foreigners, the worries acquire a more dangerous credibility. That is the real second best problem, not any theorem you might derive about trade and externalities.
2. I don’t see the evidence that marginal strengthenings of the safety net will diminish anti-foreign statements. Yet this has become an article of faith among the globalization "middle roaders." A crude look at the cross-sectional evidence does not indicate a clear pattern. France and Germany have a strong safety net but they are skeptical about economic globalization; Sweden and the Netherlands are more sympathetic. Switzerland, with a weaker safety net, is pro-globalization for the most part. Like Will Wilkinson and unlike Bryan Caplan, I am for a safety net but often a bigger safety net makes people even more fearful of loss and change. Note it is the Bismarckian welfare state, the world’s most advanced at the time, which turned to The Dark Side during the 1930s. I’m hardly suggesting causality here but it didn’t halt the process either.
3. Yes I know about Denmark but job retraining programs in the U.S. hardly have a stellar record.
4. When it comes to improving the quality of economic adjustment, the overwhelming priority should be to delink health insurance from having a job. I doubt if that will decrease skepticism about foreigners, however.
5. Most of the world’s wealthy economies are, if only because they are smaller and less diversified in terms of resources, more open than is the United States. They do just fine and by no means do they all spend more on social welfare than does the United States.
6. Cite Samuelson and Stolper all you want, here is yet another paper showing that outsourcing has not been placing significant downward pressure on American wages.
7. China is now the world’s leading supplier of photovoltaic cells.
But it is really the first point that is the key.
Addendum: Brad DeLong comments extensively.
I think you put to much weight on point 1. More precisely, I think public acceptance of technological progress and trade between the states is not the clear-cut case you suggest it is.
For starters, 19th century people opposed industrialisation for the same reasons they oppose trade: it was taking jobs while the benefits seemed to go the already well-off. It took massive redistribution, especially cheap education, to make people accept that technological progress would be progress for all.
As for trade between the states: just look at the EU to see how hard it is to integrate economies when they are already developed and everyone has some stake in the status-quo. Free trade between the states is taken for granted because the economies of the states have evolved, over more than a century, in an open environment. as a result the economies are completely intertwined, and their cultures are homogeneous enough that people move from one state to another without much thought.
Using trade between the states as example for world trade is bit like pointing to the Catholic church and saying ‘Look, setting up a religion for hundreds of millions is easy’.
Re: (2), it does seem significant that anti-immigrant invective is often phrased in terms of “them” taking “our” welfare benefits, unemployment assistance, emergency rooms, and so on. The intended message may be “Don’t worry about foreign competition; we’ll take care of you,” but people often seem to hear, “OMG! Them furriners from poor places are going to come here and take away our safety net.”
Doug – do you think John Deere farm equipment and Monsanto seeds increase productivity per acre or per farmer? If you agree with this, then new ideas DO INDEED contribute to higher living standards (even by your strangely narrow definition).
“Most of the world’s wealthy economies are, if only because they are smaller and less diversified in terms of resources, more open than is the United States.”
There is a flip side to this. Basket case economies of the world tend to be the most protectionist.
What I hear from people all the time is the belief that immigrants are driving us into debt. That makes it into the local newspapers also. There is essentially zero coverage on the benefits of immigration, and fre trade.
I really like #4 on your list. I think that delinking health care from employers should come before any revision of corporate income taxes.
Steve
Maybe France and Germany are skeptical towards globalization not because they have safety nets, but because of domestic policies that are bad and hence vulnerable to open competition?
Using trade between the states as example for world trade is bit like pointing to the Catholic church and saying ‘Look, setting up a religion for hundreds of millions is easy’.
How so? The U.S. states do vary quite widely in terms of levels affluence, stringency of regulation, and labor laws and levels of unionization. New York is about as different from Alabama as Germany is from Poland (source of those scary plumbers).
If it were at all legally possible, it’s almost certain that UAW would be calling for protection from cheap, non-union plants in the American south.
“Conservative and liberal economists agree that new ideas are the fundamental source of higher living standards.”
Hmm. I’d argue that access to energy and agriculturally productive land are the fundamental sources of higher living standards.”
Very nice rhetorical slight of hand there. Without ideas there is no agriculturally productive land because there is no idea of agriculture! Without a knowledge of combustion, fractionation, there is no energy source like oil. And how exactly do you get access to oil/coal or hydro power without knowledge. Do you pluck an oil drill from the oil drill tree. Does dynamite grow in the ground. Do you utter a magic spell and oil magically rushes forth. But wait how do you even know oil/coal are sources of energy without some idea that they are sources of energy. Or is that just knowledge you acquire at birth.
“They certainly do contribute, but they are not fundamental. Think of it in Maslovian terms; everybody needs to eat, and nearly everybody needs climate control, and any sort of substantial economy needs energy to move goods from one place to another. If these are not available, you can’t have anything even vaguely resembling a modern economy.”
So they are necessary conditions but it does not mean they are sufficient.
Also I don’t think all your conditions are even necessary. You don’t necessarily need cheap/easy transportation of goods if you have a cheap way to transport ideas.
The study by Broda and Romalis that trade has reduced the inflation rate for the poor by about a half percentage point is very good and could go a long way in explaining many of the problems so many people are having with much of the data on standards of living.
But on the other hand if you think the primary reason for high food and oil prices is demand from Asia wouldn’t this offset many of the gains that they found?
I for one am not so sure that the anti-trade movement is as serious as you make it out to be. I look at the democratic campaign talk about free trade in Ohio this year as being much like Don Boudreaux in that every time he sees something he does not like he figures out some way to blame it on the government.
Could the unease with trade also be that people are becoming uneasy with large unelected organizations that are beginning to compete with government? For example, the federal government seems to have failed at controlling drug prices despite adding a giant program this decade. Yet WalMart has remade the market with its buying and distribution power in the past 3 or 4 years. Home Depot and Lowes are better positioned with their vast distribution networks to move essentials to hurricane ravaged communities than FEMA. I see these as amazingly good developments, but I sense that average people look on them with suspicion for being inherently undemocratic in their execution. As I see it, killer dog food from China is more a hysteria focussed on cost minimization than one about evil Chinese.
When it comes to trade, economists like to portray themselves as a tiny minority lacking all political power who are battling vast forces for a better future.
Yet, I’ve only once seen an estimate of how big the remaining average tariff burden is on imports into America — in Tim Harford’s 2005 book, he said it was only 2.9%.
So, we virtually have Free Trade. Ricardo has conquered. There are almost no more gains to be made from cutting tariffs. This is about as good as it gets.
Isn’t about time for economists to admit they’ve won?
Hi, uh, Assman.
I have a different framing of the issue, that’s all. There seems to be an inclination to celebrate ourselves and the endless stream of plastic gewgaws that move from China to Wal-Mart for us to enjoy. I think of this as a strange, passing moment. We’re not any smarter than people were 5,000 years ago. I think of us as teenagers who inherited a house and just (150 years ago) found a bunch of money hidden in the basement (fossil fuels). We could have invested it in something that would pay long-term returns (like sustainable energy, which thing Jimmy Carter was pushing 30 years ago), but instead we decided to party with it. This idea that we can blithely carry on business as usual without solving the energy and global warming problems — which will require massive overhauls of infrastructure which means decades of work — is just silly to me.
As far as selling ideas, I submit that you have to have a pretty well-established economy before such a thing is possible. If you don’t have international laws protecting intellectual properly, it’s very easy to just steal an idea.
Buying [junk] from China frees American labor to produce other valuable goods and services. Would you rather have an American working 40 hours a week making …., or working 40 hours a week as a teacher, engineer, construction worker?
That presumes that you have effective and relatively painless transitioning from those of the former to those in the latter. Doubly so if you
Another point is that the quality of that stuff is junk at best. The only thing it’ll do is be outlasted by the US, Western Europe, or (for electronics only) Japan. Who needs to go smash stuff enmasse when the (non-US made) junk breaks apart by itself?
As for Katrina – consider it a very lucky roll of the dice. One incident, and union haters all come marching in to NOLA.
How do you know that people are anti-free trade due to suspicion of foreigners? That sounds like a pyschological assessment? Does evidence bear out that reason?
Pt. 2. Yes, there is causation but it goes both ways. Consider that entrepreneurs have a high tolerance for ambiguity, take risks, and have an objective assessment of their skills. The average employee is by definition and temperament, not an entrepreneur.
People wary of ambiguity, risk averse, and unclear on their skills will seek stability and in an unstable economy will demand a safety net. By demanding a bigger safety net, people do become more dependent and risk averse. This leads to even less entrepreneurs and bigger corporations because of the less competition. Bigger corporations leads to more regulator capture, unionization as a false remedy and less individual protection. The key individual protection is choice. Your best safety net is being able to land on your feet.
Yes, economists have won on free trade, but it’s important to run up the score.
Tyler:
Some comments, set out one by one, on your own list of comments:
1) This, to put it mildly, is a strange comment: is it not much easier for a worker who loses a job in Michigan to import competition — or his or her firm shifting employment abroad — to find a new job in Minnesota or California than in China or India and move his or her family there? And if it isn’t, how in the world do libertarians complain that the US government is a monopolistic provider of disliked social and regulatory policies, financed by a tax system that the same libertarians dislike? Why don’t libertarians simply move from north Virginia or Chicago to Dubai or Singapore?’
2) This too is odd, if only because it is contradicted by your 5th point: smaller democratic industrial countries like the Scandinavians, Holland, and others have long been far more open to international trade than large democratic industrial countries — not just in the EU, but in the US and Japan. And so they have, for decades now, sought to offset the concerns of their populations — especially less-skilled workers in import-competing industries, but not just them — with large amounts of social spending of various kinds.
Switzerland, moreover, actually spends more on total social spending than the average for the euro-zone 12 West European countries (at any rate as of 2003), according to OECD figures — the latest I could find.
All these social programs, by the way, were initiated and grew rapidly before large numbers of immigrants arrived in their countries, diluting to an extent national cohesion. It was Assar Lindbeck and others who first observed back in the 1970s and 1980s that the advanced welfare state could not easily be reconciled with extensive immigration, let alone free immigration from much poorer countries. And everywhere in West Europe, with variations across countries, there have been strong reactions in public opinion about the “over-use† of social welfare programs by these immigrants . . . with governments responding variously to these trends in opinion polls.
3) That seems correct.
4) That seems correct as far as it goes. But wait! Why not, considering that even President Bush has emphasized the need for educational- and skill-retraining by the “losers† in trade competition — predicted accurately, despite what you same in your 6th point, by Samuelson-Stolper and numerous follow-up studies that relax their assumptions in their original paper of the early 1940 — introduce market-oriented incentive programs that would, say, maintain 90 % of annual income in the lost job for two years or so if the laid-off workers, plus portable health insurance, if they either take a lower-paying job (and hence the subsidy offsets most of the income-loss) or enroll in a certified retraining program. That latter, of course, would have to be monitored to ensure it’s a valid retraining program.
5) If this claim by you is valid, it’s only because you have in mind, presumably, Japan, South Korea, Taiwan, and Singapore . . . and not rather established older democratic industrial countries in West Europe. Is that a fair comparison, adding in these Asian countries. Japan, after all, actually spends a little more on social welfare than the US as a percentage of GDP if you omit education: add in education, and it’s about the same. Ireland, by the way, is the only West European country to spend about the same on social welfare as a percentage of GDP as the US does. And possibly, along with its pro-business policies and tax breaks for foreign multinationals (and local firms), its low social spending has been a stimulus to its impressive economic growth rate over the last 25 years.
6) See the above comments for 4). Here, by the way, is a link to an admirably concise and brief summary of scholarly work on the Samuelson-Stolper theorem over the last several decades. B y an Irish economist: http://www.ucd.ie/economic/staff/pneary/pdf/stolpers.pdf The theorem seems, especially in its modified versions that add complexities to the original two-factor reasoning by Samuelson and Stolper (and lack of mobility), to be robust.
7) As others have noticed here, you do not, Tyler, supply any references to reputable survey data that show that Americans — or Germans or Frenchmen or others — who worry about globalizing trends and job-insecurity (or about stagnant or declining wages) are motivated primarily in their worries by anti-foreign sentiment.
…..
Beyond that, it is always a source of astonishment to me — a moderate independent, with pragmatic views of the enormous complexities of social, political, and economic life (in the same traditions that go back to Edmund Burke in England and Hamilton, Madison, Washington, and John Adams in our country) — that libertarian enthusiasts have no understanding of how the successful workings of our democratic polity and the political, legal, and cultural institutions underpinning our capitalist market economy depend in large measure on 300 million very diverse people, ethnically, racially, and in education and status, taking seriously their notions of citizenship and the rights and duties that it entails.
Agreed: we can, as citizens, disagree about the soundness of government in our lives and this or that program. I myself have no quarrel, just th contrary, that certain kinds of welfare spending in this country — especially the sort initiated by LBJ’s Great Society programs — were not just wrong-headed but were a significant enabling influence in the explosive decline of the two-parent black (and now Hispanic) families in this country . . . with 70% of babies born to African-Americans now illegitimate, and 50% for Hispanic Americans and residents. A conclusive study, to the extent any statistical study is that, was created by the American Academy of Arts and Sciences back in the mid-1990s and found that for every 10% increase in welfare-spending led to 11% increases in illegitimacy.
But what has that to do with portable health insurance, far better income support for job-retraining, and for helping a laid-off worker and his or her family to move to another locality, maybe 3000 miles away, to take a new job willingly?
Something else, too — and more to the point.
Namely? How you and your colleagues at GMU or elsewhere, all congratulating themselves in being citizens-of-the-world in economic and social matters (like unlimited free immigration), expect the workers of China or India or Brazil to volunteer as my father and my brother did in the past, when our country is threatened, to fight against the next enemy state or coalition that operates with an ideological hostility to free markets and democratic rights. Or are we already in the dreamt-of libertarian world of endless economic interdependence and hence permanent harmony and peace world-wide, with all serious ideological or national differences settled in line with Coase-like bargaining among governments . . . maybe with a little training and coaxing from GMU-trained experts?
Michael Gordon, AKA, the buggy professor: http://www.thebuggyprofessor.org
“Buying [junk] from China frees American labor to produce other valuable goods and services. Would you rather have an American working 40 hours a week making …., or working 40 hours a week as a teacher, engineer, construction worker?”
Now, Sethstorm….lest we forget – it was about 40 years ago, or only a tick of the eternal clock, that Japan was making gewgaws and junk that pretty much fell apart unassisted. Now their electronics and automobiles rival the best made. That cost the big three automakers BIG TIME! Big difference today with China is that now the export of jobs, as well as technology, is going to cost us here at home in NA a whole lot more in the next 40.
All these social programs, by the way, were initiated and grew rapidly before large numbers of immigrants arrived in their countries, diluting to an extent national cohesion. It was Assar Lindbeck and others who first observed back in the 1970s and 1980s that the advanced welfare state could not easily be reconciled with extensive immigration, let alone free immigration from much poorer countries. And everywhere in West Europe, with variations across countries, there have been strong reactions in public opinion about the “over-use† of social welfare programs by these immigrants . . . with governments responding variously to these trends in opinion polls.
dissertation proposal
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